Exhibit D.2
INVESTMENT ADVISORY AGREEMENT
CONSTELLATION FUNDS
AGREEMENT made this __ day of __________, 2004, by and between
Constellation Funds, a Delaware business trust (the "Trust"), and Constellation
Investment Management Company, LP (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to each series of the Trust set forth on
Schedule A of this Agreement (each a "Fund" and collectively the "Funds"), and
the Adviser is willing to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained,
the parties hereto agree as follows:
1. DUTIES OF ADVISER. The Trust employs the Adviser to manage the
investment and reinvestment of the assets of the Funds, and to
hire (subject to the approval of the Trust's Board of Trustees
and, except as otherwise permitted under the terms of any
applicable exemptive relief obtained from the Securities and
Exchange Commission, or by rule or regulation, a majority of
the outstanding voting securities of each Fund) and thereafter
supervise the investment activities of one or more
sub-advisers deemed necessary to carry out the investment
program of each Fund, and to continuously review, supervise
and (where appropriate) administer the investment program of
each Fund, to determine in its discretion (where appropriate)
the securities to be purchased or sold, to provide the Trust
with records concerning the Adviser's activities which the
Trust is required to maintain, and to render regular reports
to the Trust's officers and Trustees concerning the Adviser's
discharge of the foregoing responsibilities. The retention of
a sub-adviser by the Adviser shall not relieve the Adviser of
its responsibilities under this Agreement.
The Adviser shall discharge the foregoing responsibilities
subject to the control of the Board of Trustees of the Trust
and in compliance with such policies as the Trustees may from
time to time establish, and in compliance with the objectives,
policies, and limitations for each such Fund set forth in the
Fund's prospectus and statement of additional information as
amended from time to time, and applicable laws and
regulations.
The Adviser accepts such employment and agrees, at its own
expense, to render the services and to provide the office
space, furnishings and equipment and the personnel (including
any sub-advisers) required by it to perform the services on
the terms and for the compensation provided herein. The
Adviser will not, however, pay for the cost of securities,
commodities, and other investments
(including brokerage commissions and other transaction
charges, if any) purchased or sold for any Fund.
2. FUND TRANSACTIONS. The Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales
of portfolio securities for the Funds and is directed to use
its best efforts to obtain the best net results as described
from time to time in the Funds' Prospectus(es) and
Statement(s) of Additional Information. The Adviser will
promptly communicate to the officers and the Trustees of the
Trust such information relating to portfolio transactions as
they may reasonably request.
It is understood that the Adviser will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the
Trust or be in breach of any obligation owing to the Trust
under this Agreement, or otherwise, by reason of its having
directed a securities transaction on behalf of the Trust to a
broker-dealer in compliance with the provisions of Section
28(e) of the Securities Exchange Act of 1934 or as described
from time to time by the Funds' Prospectuses and Statement of
Additional Information.
3. COMPENSATION OF THE ADVISER. For the services to be rendered
by the Adviser as provided in Sections 1 and 2 of this
Agreement, the Trust shall pay to the Adviser compensation at
the rate specified on Schedule B or Schedule C, as applicable,
of this Agreement. Such compensation shall be paid to the
Adviser at the end of each month, and calculated by applying a
daily rate, based on the annual percentage rates as specified
in the appropriate Schedule, to the assets. The fee shall be
based on the average daily net assets for the month involved
(less any assets of such Funds held in non-interest bearing
special deposits with a Federal Reserve Bank). The Adviser
may, in its discretion and from time to time, waive a portion
of its fee.
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the
termination of this Agreement.
4. OTHER EXPENSES. The Adviser shall pay all expenses of printing
and mailing reports, prospectuses, statements of additional
information, and sales literature relating to the solicitation
of prospective clients. The Trust shall pay all expenses
relating to mailing to existing shareholders prospectuses,
statements of additional information, proxy solicitation
material and shareholder reports.
5. EXCESS EXPENSES. If the expenses for any Fund for any fiscal
year (including fees and other amounts payable to the Adviser,
but excluding interest, taxes, brokerage costs, litigation,
and other extraordinary costs) as calculated every business
day would exceed the expense limitations imposed on investment
companies by any applicable statute or regulatory authority of
any jurisdiction in which shares of a Fund are qualified for
offer and sale, the Adviser shall bear such excess cost.
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However, the Adviser will not bear expenses of any Fund which
would result in the Fund's inability to qualify as a regulated
investment company under provisions of the Internal Revenue
Code. Payment of expenses by the Adviser pursuant to this
Section 5 shall be settled on a monthly basis (subject to
fiscal year end reconciliation) by a reduction in the fee
payable to the Adviser for such month pursuant to Section 3(a)
or 3(b) and, if such reduction shall be insufficient to offset
such expenses, by reimbursing the Trust.
6. REPORTS. The Trust and the Adviser agree to furnish to each
other, if applicable, current prospectuses, proxy statements,
reports to shareholders, certified copies of their financial
statements, and such other information with regard to their
affairs as each may reasonably request.
7. STATUS OF ADVISER. The services of the Adviser to the Trust
are not to be deemed exclusive, and the Adviser shall be free
to render similar services to others so long as its services
to the Trust are not impaired thereby. The Adviser shall be
deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority
to act for or represent the Trust in any way or otherwise be
deemed an agent of the Trust.
8. CERTAIN RECORDS. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule
31a-2 promulgated under the 1940 Act which are prepared or
maintained by the Adviser on behalf of the Trust are the
property of the Trust and will be surrendered promptly to the
Trust on request.
9. LIMITATION OF LIABILITY OF ADVISER. The duties of the Adviser
shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the
Adviser hereunder. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in carrying
out its duties hereunder, except a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of reckless disregard of its
obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable state law or Federal
securities law which cannot be waived or modified hereby. (As
used in this Paragraph 9, the term "Adviser" shall include
directors, officers, employees and other corporate agents of
the Adviser as well as that corporation itself).
10. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of
the Trust are or may be interested in the Adviser (or any
successor thereof) as directors, partners, officers, or
shareholders, or otherwise; directors, partners, officers,
agents, and shareholders of the Adviser are or may be
interested in the Trust as Trustees, shareholders or
otherwise; and the Adviser (or any successor) is or may be
interested in the Trust as a shareholder or otherwise. In
addition, brokerage transactions for the Trust may be effected
through affiliates of the Adviser if
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approved by the Board of Trustees, subject to the rules and
regulations of the Securities and Exchange Commission.
11. LICENSE OF ADVISER'S NAME. The Adviser hereby agrees to grant
a license to the Trust for use of its name in the names of the
Funds for the term of this Agreement and such license shall
terminate upon termination of this Agreement.
12. DURATION AND TERMINATION. This Agreement, unless sooner
terminated as provided herein, shall remain in effect until
two years from date of execution, and thereafter, for periods
of one year so long as such continuance thereafter is
specifically approved at least annually (a) by the vote of a
majority of those Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on
such approval, and (b) by the Trustees of the Trust or by vote
of a majority of the outstanding voting securities of each
Fund; provided, however, that if the shareholders of any Fund
fail to approve the Agreement as provided herein, the Adviser
may continue to serve hereunder in the manner and to the
extent permitted by the 1940 Act and rules and regulations
thereunder. The foregoing requirement that continuance of this
Agreement be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the
rules and regulations thereunder.
This Agreement may be terminated as to any Fund at any time,
without the payment of any penalty by vote of a majority of
the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Fund on not less than 30
days nor more than 60 days written notice to the Adviser, or
by the Adviser at any time without the payment of any penalty,
on 90 days written notice to the Trust. This Agreement will
automatically and immediately terminate in the event of its
assignment. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the
other party at any office of such party.
As used in this Section 11, the terms "assignment",
"interested persons", and a "vote of a majority of the
outstanding voting securities" shall have the respective
meanings set forth in the 1940 Act and the rules and
regulations thereunder; subject to such exemptions as may be
granted by the Securities and Exchange Commission under said
Act.
13. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by
registered or certified mail, postage prepaid, addressed by
the party giving notice to the other party at the last address
furnished by the other party to the party giving notice: if to
the Trust, at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, Attn: ▇▇▇▇ ▇. ▇▇▇▇▇, President, and if to the Adviser
at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn:
▇▇▇▇ ▇. ▇▇▇▇▇, President.
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14. SEVERABILITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby.
15. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware and the applicable
provisions of the 1940 Act. To the extent that the applicable
laws of the State of Delaware, or any of the provisions
herein, conflict with the applicable provisions of the 1940
Act, the latter shall control.
A copy of the Declaration of Trust of the Trust is on file with the Secretary of
the State of Delaware, and notice is hereby given that this instrument is
executed on behalf of the Trustees of the Trust as Trustees, and are not binding
upon any of the Trustees, officers, or shareholders of the Trust individually
but binding only upon the assets and property of the Trust. Further, the
obligations of the Trust with respect to any one Fund shall not be binding upon
any other Fund.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
CONSTELLATION FUNDS
By: ______________________
Attest: __________________
CONSTELLATION INVESTMENT MANAGEMENT COMPANY, LP
By: ______________________
Attest: __________________
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SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
LISTING OF FUNDS
Name of Fund
Constellation TIP Target Select Equity Fund
Constellation TIP Small Cap Value Opportunities Fund
Constellation TIP Healthcare & Biotechnology Fund
Constellation TIP Financial Services Fund
Constellation TIP Tax Managed U.S. Equity Fund
Constellation Clover Large Cap Value Fund
Constellation Clover Core Value Fund
Constellation Clover Small Cap Value Fund
Constellation Clover Core Fixed Income Fund
Constellation CIP Ultra Short Duration Fixed Income Fund
Constellation CIP Short Duration Fixed Income Fund
Constellation CIP High Yield Fund
Constellation HLAM Large Cap Value Fund
Constellation Strategic Value and High Income Fund
6
SCHEDULE B
TO THE
INVESTMENT ADVISORY AGREEMENT
FOR FUNDS WITH PERFORMANCE ADJUSTMENTS
This Schedule B shall apply to each of the Funds identified on Schedule B-1
hereto.
(a) GENERAL. The Trust shall pay to the Adviser, as compensation
for the Adviser's services and expenses assumed hereunder, a fee determined with
respect to each Fund, which shall be composed of the Basic Fee (defined below)
and a Performance Adjustment (defined below) to the Basic Fee based upon the
investment performance of a class of shares of the Fund in relation to the
investment record of a securities index determined by the Trustees of the Trust
to be appropriate over the same period.
(b) INDEX, CLASS AND CHANGES THERETO. The Trustees have initially
designated for each Fund the index and class of shares of the Fund identified on
Schedule B-1 as the index and class to be used for purposes of determining the
Performance Adjustment (referred to herein as the "Index" and the "Class,"
respectively). From time to time, the Trustees may, by a vote of the Trustees of
the Trust voting in person, including a majority of the Trustees who are not
parties to this Agreement or "interested persons" (as defined in the ▇▇▇▇ ▇▇▇)
of any such parties, determine (i) that another securities index is a more
appropriate benchmark than the Index for purposes of evaluating the performance
of the Trust; and (ii) that a different class of shares of the Trust
representing interests in a Fund other than the Class is most appropriate for
use in calculating the Performance Adjustment. If a different index (the
"Successor Index") is substituted for the Index in prospectively calculating the
Performance Adjustment, the calculation of that portion of the Performance
Adjustment attributable to any portion of the performance period prior to the
adoption of the Successor Index will still be based upon the Fund's performance
compared to the Index. If a different class of shares (the "Successor Class") is
substituted in calculating the Performance Adjustment the use of a Successor
Class of shares for purposes of calculating the Performance Adjustment shall
apply to the entire performance period so long as such Successor Class was
outstanding at the beginning of such period. In the event that such Successor
Class of shares was not outstanding for all or a portion of the Performance
Period, it may only be used in calculating that portion of the Performance
Adjustment attributable to the period during which such Successor Class was
outstanding and any prior portion of the Performance Period shall be calculated
using the Successor Class of shares previously designated.
(c) BASIC FEE. The basic fee for a Fund (the "Basic Fee") for any
period shall equal: (i) the Fund's average net assets during such period,
multiplied by (ii) the annual rate identified for such Fund on Schedule B-1
hereto, multiplied by (iii) a fraction, the numerator of which is the number of
calendar days in the payment period and the denominator of which is 365 (366 in
leap years).
(d) PERFORMANCE ADJUSTMENT. The amount of the performance
adjustment (the "Performance Adjustment") shall equal: (i) the average net
assets of the Fund over the Performance Period (as defined below), multiplied by
(ii) the Adjustment Rate (as defined below), multiplied by (iii) a fraction, the
numerator of which shall be the number of days in the last month of the
Performance Period and the denominator of which shall be 365. The resulting
dollar figure will be added to or subtracted from the Basic Fee depending on
whether the Fund experienced better or worse performance than the Index.
(e) ADJUSTMENT RATE. The adjustment rate (the "Adjustment Rate")
shall be as set forth in Schedule B-2 for each Fund, provided, however, that the
Performance Adjustment may be further adjusted to the extent necessary to insure
that the total adjustment to the Basic Fee on an annualized basis does not
exceed the maximum Performance Adjustment identified for such Fund in Schedule
B-2.
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(f) PERFORMANCE PERIOD. The performance period (the "Performance
Period") shall commence on the first day of the month next occurring after this
Agreement becomes effective with respect to the Fund (the "Commencement Date"),
provided, however, that if this Agreement should become effective on the first
day of a month with respect to a Fund, then the Commencement Date shall be the
first day of such month. The Performance Period shall consist of a rolling
12-month period that includes the current month plus the preceding 11 months
following the commencement of Fund operations under this Agreement. No
Performance Adjustment shall be made with respect to any period that is less
than 12 months, provided, however, that the Adviser may calculate a Performance
Adjustment for the Constellation TIP Financial Services Fund based upon
performance achieved by such Fund prior to the effective date of this Agreement.
(g) MEASUREMENT CALCULATION. The Fund's investment performance
will be measured by comparing the (i) opening net asset value of one share of
the Class of the Fund on the first business day of the Performance Period with
(ii) the closing net asset value of one share of the Class of the Fund as of the
last business day of such period. In computing the investment performance of the
Fund and the investment record of the Index, distributions of realized capital
gains, the value of capital gains taxes per share paid or payable undistributed
realized long-term capital gains accumulated to the end of such period and
dividends paid out of investment income on the part of the Fund, and all cash
distributions of the companies whose securities comprise the Index, will be
treated as reinvested in accordance with Rule 205-1 or any other applicable rule
under the Investment Advisers Act of 1940, as the same from time to time may be
amended.
(h) PAYMENT OF FEES. The Management Fee payable hereunder shall be
computed daily and paid monthly in arrears.
(i) AVERAGE NET ASSETS. The term "average net assets" of a Fund as
used herein for any period shall mean the quotient produced by dividing (i) the
sum of the net assets of the Fund, as determined in accordance with procedures
established from time to time under the direction of the Board of Trustees of
the Trust, for each calendar day of such period, by (ii) the number of such
days.
(j) TERMINATION. In the event this Agreement with respect to any
Fund is terminated as of a date other than the last day of any month, the Basic
Fee shall be computed on the basis of the period ending on the last day on which
this Agreement is in effect for such Fund, subject to a pro rata adjustment
based on the number of days elapsed in the current month as a percentage of the
total number of days in such month. The amount of any Performance Adjustment to
the Basic Fee will be computed on the basis of and applied to the average net
assets over the Performance Period ending on the last day on which this
Agreement is in effect for such Fund.
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SCHEDULE B-1
TO THE
INVESTMENT ADVISORY AGREEMENT
LISTING OF FUNDS WITH PERFORMANCE ADJUSTMENTS
ANNUAL BASIC
NAME OF FUND / APPLICABLE CLASS PERFORMANCE INDEX FEE RATE
-------------------------------------- ------------------------------------------ ----------------
Constellation TIP Target Select Equity ▇▇▇▇▇▇▇ 3000 Index 1.0625%
Fund
Constellation TIP Small Cap Value ▇▇▇▇▇▇▇ 2000 Value Index 0.95%
Opportunities Fund
Constellation TIP Healthcare S&P 500 Healthcare Index 1.00%
& Biotechnology Fund
Constellation TIP Small Cap Equity ▇▇▇▇▇▇▇ 2000 Index 0.95%
Fund
Constellation TIP Financial Services S&P Financials Index 1.00%
Fund
Constellation TIP Tax Managed U.S. S&P 500 Index 0.75%
Equity Fund
Constellation Clover Large Cap Value ▇▇▇▇▇▇▇ 1000 Value Index 0.74%
Fund
Constellation Clover Core Value ▇▇▇▇▇▇▇ 3000 Value Index 0.74%
Fund
Constellation Clover Small Cap Value ▇▇▇▇▇▇▇ 2000 Value Index 0.85%
Value Fund
Constellation Clover Core Fixed ▇▇▇▇▇▇ Brothers Aggregate Bond Index 0.45%
Income Fund
Constellation CIP Ultra Short Merrill ▇▇▇▇▇ Three Month U.S. 0.25%
Duration Fixed Income Fund Treasury ▇▇▇▇ Index
Constellation CIP Short Duration ▇▇▇▇▇▇ Brother 1 - 3 Year U.S. Gov't. 0.25%
Fixed Income Fund Bond Index
Constellation CIP High Yield ▇▇▇▇▇▇▇ ▇▇▇▇▇ High Yield, Cash Pay Index 0.55%
Fund
Constellation HL Large Cap Value [tbd] [tbd]
Fund
Constellation Strategic Value and Blended Index: 0.10%
High Income Fund - 50% ▇▇▇▇▇▇▇ 2000 Value, and
- 50% ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ Pay
High Yield Index
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SCHEDULE B-2
TO THE
INVESTMENT ADVISORY AGREEMENT
PERFORMANCE ADJUSTMENT RATE
MAXIMUM RATE
NAME OF FUND / CLASS ADJUSTMENT METHODOLOGY
--------------------------------- ---------- -----------
Constellation TIP Target Select +/- 0.15%
Equity Fund -
[Class I Shares]
Constellation TIP Small Cap +/- 0.15%
Value Opportunities Fund -
[Class II Shares]
Constellation TIP +/- 0.25%
Healthcare & Biotechnology
Fund
Constellation TIP Small Cap +/- 0.15%
Equity Fund -
[Class II Shares]
Constellation TIP Financial +/- 0.25%
Services Fund -
[Class I Shares]
Constellation TIP Tax Managed +/- 0.15%
U.S. Equity Fund -
[Class II Shares]
Constellation Clover Large Cap +/- 0.10%
Value Fund -
[Class I Shares]
Constellation Clover Core Value +/- 0.15%
Fund -
[Class I Shares]
Constellation Clover Small Cap +/- 0.125%
Value Fund -
[Class I Shares]
Constellation Clover Core Fixed +/- 0.08%
Income Fund - Class I Shares
Constellation CIP Ultra Short +/- 0.06%
Duration Fixed Income Fund -
[Class I Shares]
Constellation CIP Short Duration +/- 0.06%
Fixed Income Fund -
[Class I Shares]
Constellation CIP High Yield +/- 0.10%
Fund -
[Class I Shares]
[Constellation ▇▇ ▇▇▇▇▇▇
Growth Fund] -
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[Class I Shares]
Constellation Strategic Value and +/- 0.05%
High Income Fund -
[Class I Shares]
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SCHEDULE C
TO THE
INVESTMENT ADVISORY AGREEMENT
FOR FUNDS WITH NO PERFORMANCE ADJUSTMENT
This Schedule B shall apply to each of the Funds identified on Schedule C-1
hereto.
(a) The Trust shall pay to the Adviser a fee for each Fund
calculated daily and payable monthly in arrears, computed as a percentage of the
average net assets of the Fund for such month at the rate set forth in Schedule
C-1 hereto.
(b) The "average net assets" of the Fund for any month shall be
equal to the quotient produced by dividing (i) the sum of the net assets of such
Fund, determined in accordance with procedures established from time to time by
or under the direction of the Board of Trustees of the Trust, for each calendar
day of such month, by (ii) the number of such days.
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SCHEDULE C-1
TO THE
INVESTMENT ADVISORY AGREEMENT
LISTING OF FUNDS AND FEE RATES
Name of Fund
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